Tesla: Time to Sell

By Ben Levisohn

Is it time to sell Tesla (TSLA)? Weeden & Co’s Michael Purves says it is–and his argument has little do with the fundamentals.

Bloomberg

Purves writes:

When steam ran out of the Apple rally a year ago, the stock fell hard despite the fact that its valuation never approached extreme levels. While TSLA, a manufacturing company, has been trading at 10x forecasted revenues, it has been a nightmare of a short this year with a 400%+ ytd return. The stock has become so divorced from fundamentals that the primary discussion needs to focus on technical analysis – which is now suggesting this year’s rally is coming to an end; and that momentum is more likely exposed to the downside. While the broader tape has been bullish, this stock can drop quickly.

Purves offered four technical indicators that suggest the next move is down:

1) Tesla has broken its uptrend by falling below both its 21-day and 45 moving averages.

Tesla has fallen 5.1% to $162.75 today at 1:47 p.m. and other automakers are weak as well. General Motors (GM) has dropped 1.7% to $34.80, Ford (F) has declined 1% to $17.42 and Toyota Motor (TM) is off 1.2% at $129.08.

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There are 28 comments

OCTOBER 23, 2013 2:08 P.M.

redharel wrote:

there is no H&S pattern yet, only closing below 158.88.
stop scaring people, if you so sure come on and short it, i dare you

OCTOBER 23, 2013 2:10 P.M.

SteveG3 wrote:

Ben, another article where you've stretched to find a photo to minimize the car's appeal, and you've stretched to present a case to sell Tesla.

OCTOBER 23, 2013 2:17 P.M.

dayviewing wrote:

Even discounting the H&S pattern (which I also do see) the three other technical indicators all stand out clearly. As well, the average-true range (ATR) has expanded and is large on the recent down days, indicating greater volatility on down days. Not looking good. Closed out my long position.

OCTOBER 23, 2013 2:28 P.M.

Weapon wrote:

Tesla's volatility on news is nothing new. That said, with earnings call in 2 weeks you would be crazy to sell since chances are Tesla is going to outperform most estimates by a large gap. They are trying to bring the price down so they can buy them up before earnings call.

OCTOBER 23, 2013 2:43 P.M.

Alpha wrote:

So Tesla is fairly valued at $250? $500? $1000? This selloff is unwarranted? Really? I guess there is no limit to how high Tesla's stock price can go. Those who believe that are the same folks who bought housing in 2006.

OCTOBER 23, 2013 2:44 P.M.

Kansan wrote:

@redharel I am shorting it! Soon to take advantage of it's plunge!

OCTOBER 23, 2013 2:47 P.M.

Tesla for 2 years now wrote:

Watch the surge return drooling to buy after 3rd QTR reports post.
Anyone remember the activity the week or so leading up to the 2nd QTR report releasal? The stock was dropping and all "experts" were trumpeting the doom and gloom of how it was about to crash.
I believe it jumped 8% once results went public.
This upcoming report holds the tale.

OCTOBER 23, 2013 2:53 P.M.

Rabbit3 wrote:

I am confused. sell or stay? Isn't that the stock price reflects the consumer confidence in the product? if Tesla has the best scores in auto tests, why is the reason for this sell-off? First it was because of the German interview, then comes the investigation of the fire, now Barron again?

OCTOBER 23, 2013 3:06 P.M.

Knows Better wrote:

@rabbit - the rest of the story is there will be a large buy up of Tesla stock just prior to the quarterly numbers. This is facilitated by the media systematically beating down the stock with negative journalism in the hopes of driving off low holders so that the big money can buy low and ride high.
It will touch $200 in January.
If you have any at all, hold it.

OCTOBER 23, 2013 3:22 P.M.

Rabbit3 wrote:

@Knowsbetter-
I hope you are right. I am holding on to it a bit longer and see what happens.

OCTOBER 23, 2013 3:50 P.M.

DON MICHEL wrote:

I JUST DOULE MY STAKE IN TESLA. I HAD ALREADY DOUBLED MY MONEY. IT IS A GAME CHANGER!

OCTOBER 23, 2013 3:51 P.M.

Rick wrote:

With news this week that Tesla will cover all of Germany with super chargers a year from now, and the Asian market just opening, Tesla's outlook for sales and demand is much better than most of us thought possible just a couple months ago. This would be a really stupid time to sell by trying to compare Tesla to GM.

OCTOBER 23, 2013 3:59 P.M.

WorldOfHurt wrote:

Shorts will get a taste of the fundamentals soon enough. A world of hurt coming for shorts.

OCTOBER 23, 2013 4:44 P.M.

Gordonr wrote:

utter rubbish.

OCTOBER 23, 2013 4:57 P.M.

chrisfs wrote:

Depends on your time frame. If you are interested in only the next twoo weeks or you are
a techie who wants to watch every wiggle then you may want to sell it. If you are looking a year
or two out when they start selling a car that's affordable to average joe with acharger network
that let's you drive across the country and sales in Europe as well then you might want to buy more.
I skipped on Ebay a long time ago beause I couldn't see people buying stuff over the internet from
other people and no one getting cheated.

OCTOBER 23, 2013 5:42 P.M.

kk wrote:

this is the game for rich people. unless people really bought the company like jcp or bbry....... then cant help them. need at least 2 yrs to change the financial condition.
BUT, for tesla, it is totally different story, since too many individual investor stake in and short cause long term hold by those institutions hard to make money. that is why they use different market analysts and strategries to get rid of most short position before big earning buy.
why rich's game? people treat same amount money in different meaning. 50k maybe all to a small investor, but to rich maybe only 5% of their total stake.
always hold is not the best way to play......need use inverse logic to beat or avoid big sell and catch big buy

OCTOBER 23, 2013 6:04 P.M.

chrisfs wrote:

Individual stocks is a riskier game. Never bet all on one stock
Use an index fund.

OCTOBER 23, 2013 7:16 P.M.

Anonymous wrote:

Been calling this a short since 185, short tsla to 75 than cover. Stock will re test its 2012 low of 30 before building a longer term base. A lot od down side here and a lot of institutions looking to sell out and protect their gains.

OCTOBER 23, 2013 8:39 P.M.

whimsy wrote:

the shares are probably discounting annual unit volumes in excess of 50k to 75K.

OCTOBER 23, 2013 8:52 P.M.

Traderone wrote:

Tesla will fall to at least to $144.00 if it closes below that level there might be a quick bounce or or retracement to a shorter term average but any pronounced selloff below this level takes it to around $132.00 then $125 then $97

OCTOBER 23, 2013 9:35 P.M.

haha wrote:

How do you have a job here

OCTOBER 23, 2013 9:42 P.M.

Harry Palms wrote:

Just buy the Jan Calls the day of earnings at 3:59 pm... works every time... doing this tomorrow with amazon

OCTOBER 23, 2013 9:51 P.M.

Da bull wrote:

they will show positive earnings only on the basis of their accounting tricks related to their auto lease residual loss reserves, just like they have done in prior quarters.

OCTOBER 24, 2013 12:34 A.M.

Automaker? wrote:

Having a hard time understanding this company. We all watched as much larger automakers with a lot more resources and larger profitable product portfolios fell to their knees in bankruptcy. Some of the best technology that exists in e-cars is sold at a terrible loss. Yet, people still believe that a new blood automaker can make a stake with very little experience, an expensive product and with technology that has proven not to be profitable. Like many folks, I would like to see it work but how can it be possible for Tesla to stand the pressure that other, much more experienced automakers have dealt with?

OCTOBER 24, 2013 3:26 P.M.

dave wrote:

gas in cars = film in cameras.... these funny titke writers... i often wonder to myself if their uncles are big shots in oil and big auto...
i think tsla will hit 800+ once MODEL E launches....and go from there.
buying more today!

OCTOBER 25, 2013 10:27 A.M.

a watcher... wrote:

Ben you are paid to write 'stuff''..ok, we'll give you that. Most of the writers here are very bullish; the Contrarian in me suggests the bears will win out on TSLA soon; Alos:
1) Tangible Book Value is still only .98 ...yes, 98 CENTS PER SHARE!!
2) Tremendous manipulation in the trading of TSLA shares for months now;
3) This wouldn't be the first time that a stock plunges on good earnings news, even IF one believes whatever earnings TSLA reports.
4) The so-called smart money has bought a long time ago; nothing sadder than seeing those paper profits vanish!

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.